Restructuring Indian Railways

Restructuring Indian Railways

The ritual of annual railway budget is over. Mamata Banerjee was loud and clear that social responsibility is more important than economic responsibility. Having said that, rest of her budget speech was focused on the election track in West Bengal rather than on the railway track. So additions of few trains and tinkering here & there, was all she could manage in spite of her busy schedule in Kolkata.

Lalu Prasad Yadav had gone on overdrive in teaching IIMs on how to fudge performance. Mamata Banerjee does not consider performance as any obligation to the nation. She is focused on leveraging Railways for laying her political track in West Bengal.

Mamata Banerjee has ruled out privatization of Railways but accepted Public Private Partnership. Considering the strategic importance of the railways to serve as life line of the nation, it is understandable not to privatize the same. However, there are other options to improve the overall management and give boost to Indian Railways. What we need is a mix of management structures of corporate sector and public sector to move out of government departmental structure & attitude.

It is no doubt 4^th largest railway net work in the world with more than 1.5 million employees. But look at large public sector companies like ONGC or, Oil Marketing Companies, GAIL, or BHEL, which are being managed efficiently in spite of political patronage. They are all strategically important to the nation. Today the pity is that not many know the real brains and top managers of Indian Railways. I felt bad to see a small interview of chairman of Railway Board with tongue in cheek answers to very routine questions relating to the budget (one can’t afford to displease the mercurial minister). We can not wish away the political patronage but we need to bring in CEO approach to this monolith.

Vision 2020 and Strategic Leap:

Vision 2020 calls for investment of Rs. 14 lakh crores in ten years or Rs. 1.4 lakh crores on annual basis. Every time one talks about an organizational leap it is inevitable to crystallize strategy, program and organization structure to achieve the same. Vision 2020 document has brought out three important strategic components for growth over next decade. First component is segregation of dedicated double line corridors for passenger & freight, second is increasing the speeds from 130 to 160-200 kmph range, and third is introduction of four high speed bullet train services at 250-350 kmph range.

Restructuring the Organization:

If Vision 2020 has to be implemented, there would be need to change the organization structure for effective decision making, accountability and performance. Since independence we have not added any significant new routes and have just been building on the British legacy. What is now required is to create new infrastructure, new routes, new technologies and new means of funding the investments.

Corporatization:

The Railways should have a public sector holding company with the board of directors headed by an Executive Chairman. The mandate to the company should be to establish & operate the railways net work efficiently and generate surplus revenue for redeployment into existing and new projects. The government funding of new infrastructure projects through budget along with operational subsidies on certain sectors and activities have to be accepted for say first ten years till new model stabilizes.

Fortunately for the railways, there is no problem of finding markets with ever growing population. They just have to be competitive with other alternative means of transportation through technology up gradation and passenger focus.

The restructuring of Railways therefore should aim at focus on infrastructure development, technology development, and operational efficiency. The first two aspects are of strategic importance and therefore should be handled through Strategic Business Units. Weakness of the railways is in operational efficiency and therefore restructuring of the operations should aim at improving the same.

Strategic Business Units:

The most significant approach to run the railways in future should involve separation of ownership & management of infrastructure & technology development and operations. In my opinion, the restructuring should be done to manage three strategic components of Vision 2020 separately with three Strategic Business Units (SBUs). This calls for setting up two SBUs to set up new and manage existing infrastructure for dedicated corridors of passengers and freight separately. The strategy to increase speed levels needs to be driven by separate SBU for modernization and technology up gradation of existing infrastructure of the net works. Logically, the same SBU can establish infrastructure for high speed bullet trains. This restructuring would give strategic identity and focus for implementation of the Vision 2020.

Public Private Partnership:

PPP has been accepted by railways for certain limited and selective aspects. To crystallize an option, let us look at road transport which is the most efficient mode today. The infrastructure of roads and highways net work is by and large owned and established by the government. But the rolling stock on the roads is owned by millions of individuals and thousands of companies in private as well as public sector. This little difference is an important driver of efficiency & productivity. Can we not adopt & adapt the same model suitably to rolling stock for railways?

Own Your Wagon Scheme has been in operation in a very limited sense. I would like to suggest a separate subsidiary company “Indian Railways Rolling Stock Company” (IRRS), under the holding company, which would own the rolling stock, ferry the cargo & passengers and be the user of the railways network and infrastructure. IRRS should have the 99 year lease for use of the network with lease rentals to be paid to the respective SBUs for providing infrastructure and technology along with maintenance services. IRRS should therefore focus on only operations. SBUs for infrastructure & technology would be responsible for their respective activities at their own costs recovered through rentals & annual maintenance contracts (AMC) from IRRS.

The IRRS should be the entity for partnership of Indian Railways with private companies & the public. It can raise finances by going public and offering shareholding and long term bonds so that the rolling stock is indirectly owned by the millions of shareholders and thousands of corporate entities. IRRS should have only controlling interests through equity from the holding company for strategic reasons. The net result of this approach would enable the political establishment to focus on budgeting only for investments in infrastructure and technology on one hand and operational subsidy on the other hand. It is needless to say that the operations should be generating enough revenue to offset the expenditure and generate surplus. It is understandable that the decisions like passenger fares and freight rates have to be decided in larger public interest and therefore an element of selective subsidy can not be avoided.

This approach will also take the pressure off the exchequer for funding resources for operations of the railways freeing the same for infrastructure development. This would also bring in substantial improvement in the customer orientation, operational efficiency and private sector participation in management of services. In this initiative, the control of the strategic assets would remain completely with the government and operations would be funded by the users resulting in true public private partnership initiative.

Vijay M. Deshpande

Corporate Advisor,

Strategic Management Initiative,

Pune

February 26, 2010

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Calibrate Response to Pakistan

Calibrate Response to Pakistan

India and Pakistan have scheduled talks at foreign secretary levels by end of this month in New Delhi. The timing of talks, coming as it did after visit of John Kerry, Chairman, Foreign Relations Committee of USA, makes one suspect the US pressure on India to talk at the behest of Pakistan. India has always maintained that there can not be talks without substantial progress on 26/11 trials in Pakistan and action against perpetrators of the crime. USA and Pakistan now know for sure the involvement of state actors and not just non-state actors as was initially claimed by Pakistan.

One thing is certain that US is more concerned obviously about their own game plan in Af-Pak, in which India is only a marginal player though on the receiving end of terrorist activities. Pakistan has made mockery of all the evidences produced by India and has never had any intentions to give up terrorism as an instrument of state policy. Over last decade or so application of terrorism as state policy has gone deep into DNA of Pakistan and the world has been watching just helplessly.

India had requested US to permit interrogation of David Coleman Headley, which was declined. It is quite possible that Pune blast may have been avoided if we had access to Headley. It is obvious that terror outfits involved in Mumbai attack are again involved in Pune. This brings into focus certain aspects of India-Pakistan-USA relationship.

First is that sharing of intelligence inputs between India & US should be institutionalized in a way that would give preemptive edge to security forces for proactive responses in both the countries.

Second is that Pakistan is unlikely to heed anytime to Indian inputs of intelligence on terror activities except for altering their tactics based on our feedback to successfully strike at will. They have done so in the past and can be depended upon to repeat anytime.

Third is that Pakistan is at proxy war with India while India is still talking about "Talks".

Time has come now for India to be firm in our approach both with US and Pakistan based on our own agenda and priorities. We do not have to sacrifice for the sake of US agenda on Af-Pak unless of course it is in our overall interests.

We have firmly articulated our determination about no talks without action by Pakistan on terror. So when we suddenly softened our stand and agreed to schedule talks at foreign secretary levels, it gave impression of succumbing to US pressures. However, gradually the corrections set in with statements like foreign secretaries can talk about composite issues but we will focus on terror. This is as if foreign secretaries do not represent respective governments. Let us not get entangled in diplomatic niceties which have been long back thrown out of the window by Pakistan. It is time to be forthright in our stand, quite clear and aloud for the world to know that with Pune blast we have no patience for niceties of long winding statements which mean nothing. Let us not hide behind words like being "realistic or pragmatic" which is synonymous of come down. We do not have to respond with a military action. But let us have polite and yet effective diplomacy, Sharm el Sheikh not withstanding. Prime Minister is scheduled to visit Saudi Arabia. Earlier, I have suggested that countries like Russia, Saudi Arabia, Iran and Egypt must be on our side to make Pakistan see our view point on terrorism. We must beef up support for success of any talks.

P.Chidambaram has rightly reacted to statements of Hafiz Saeed of LeT stating that he can not dictate to India about what should be done. But some times some weird thoughts cross my mind. Is Hafiz Saeed speaking for government of Pakistan (read ISI)? How can he hold rallies in heart of the city under the nose of the government? I think of political bankruptcy of Pakistan and imagine when some day the world may wake up to the facts that people like Hafez Saeed are a shadow cabinet of Pakistan! They are so much part & parcel of overt Pakistani establishment that their government would have to struggle to save face.

Now that the talks are scheduled, we should give another dossier to Pakistan detailing what specific actions are needed on Mumbai / Pune attacks before composite dialogue can be thought of. In any case we are having some work in progress on track II diplomacy as far as resolution to Kashmir related issues are concerned because Chidambaram had stated that silent diplomacy is going on without much publicity. That is a good sign for proactive response. Now the message to Pakistan should be to focus talks on new composite issues of Mumbai & Pune attacks. Unfortunately, Pakistan's covert activities in last two years have pushed Kashmir out of the agenda and issue now is not about the ends but about the means adopted by Pakistan.

If Pakistan is serious about holding any talks, there must be concrete action from their side to gain confidence of India for a change. They must give good enough reasons to India to put issue of terrorism on the backburner. In the meantime, it would be interesting to wait for the court verdict against Ajmal Kasab, the Mumbai terror attack accused. The verdict should send a strong message to all those who matter. I hope we will not create another Afzal Guru!

Vijay M. Deshpande
Corporate Advisor,
Strategic Management Initiative,
Pune
February 19, 2010
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Political Morality and Fault Tolerant Society

Political Morality and Fault Tolerant Society

In last decade or so, it has become a trend to protest against artists, painters, film producers or actors in the name of political assertion of morality. The painters or actors have to fall on the feet of the high and the mighty to get their blessings. Theaters or film producers and actors must seek protection to screen a film, or face stone pelting crowds. The sportsmen are also targeted for being what comes naturally to them… being Indian. From Sania Mirza to Sachin Tendulkar all leading players had their share of experiences. From Karan Johar to Amitabh Bachchan, and from Jaya Bachchan to Shah Rukh Khan all have been through the baptism by fire! The books & films are banned and then bans are lifted. And while all the high pitch drama unfolds, the target audience as well as the vote bank is not even concerned about what goes on except for hassles and inconveniences if any.

Political parties take on themselves the role of self appointed guardians of morality to address their vote bank. Religious groups with affiliation to political parties have their own agenda and vent out their anger with slightest provocations. In fact participation of common man is seldom there in such protests which are limited to a few hired professionals to create disturbances and fear among the public. It only serves the purpose of keeping news channels busy 24x7. May be a few apologies here and there and the issues are over. So finally it boils down to just egos of a few politicians for which the public has to put up with all the hassles and loss of property etc. If one looks back at such incidences in last 5 years it becomes clear that none has been taken to their logical conclusion. They all have fizzled out or lost relevance.

The net result is trampling on the fundamental rights of the citizens for expression of free speech. The cost of this is reflected in damages caused to the public property, loss of production or economic activities. The court cases against perpetrators of crimes, if any, are dragged till all concerned lose their patience. Though legal provisions exist to make political parties pay for the damages, there are hardly any inspiring land mark judgments to make any difference. One simply does not know if any politicians, demonstrators or unconnected opportunist hoodlums involved in rioting have ever been punished. And yet the show must go on.

The politicians have fundamental right to have their own views and express them freely as much as common man has. But taking shelter of a political banner to impose their own views on whoever they do not agree with is not democracy. Politicians get elected to assemblies or parliament and that is the battle field for them to air their views, debate, pass strictures, and censure anything unpalatable, if they can. Taking to the streets at slightest irritation shows their desperation and ineffectiveness within the house of assembly or parliament where they are ill equipped and unable to sell their views.

This is not to advocate banning of public protests to attract the attention of the authorities or law makers. But there must be civilized norms of how the protests would be conducted by any political party. Today with hundreds of TV channels covering everything live, even one banner of protest along with a press conference is more than adequate to reach out to millions of viewers without need to break glasses, pelt stones, burn tires or damage furniture to attract attention. Technology for mud slinging has improved with sting operations, doctored CDs & websites and so bricks & mortars are not required for damaging private & public properties. All the political parties must evolve a code of conduct for peaceful demonstrations.

At present no one knows if the politicians & people seen indulging in rioting on TV screens have ever been punished. The government and political parties are not interested in taking any actions as quid pro quo. Under these circumstances, the journalists or news channels and NGOs should compile information on follow up of cases against rioters of political parties along with damages incurred and publish information periodically to high light inaction or action taken.

Today the society has by and large become fault tolerant to an extent that there is general cynicism when it comes to political system and general governance. Either there is total indifference or sudden outburst of pent up feelings resulting in unexpected blow ups. We, as members of society, must calibrate our responses based on data and factual information and resist unreasonable diktats & political interpretations of creations of artists, professionals, writers, and leave it to individuals to decide what one should see or read and what one should not. If people do not like a book, the word of mouth would ensure that a book does not sell. If people do not like to watch players from some teams, they would switch off their TV sets or do not go to stadium to watch a match.

The recent amendment to IT Act 2000 has resulted in the government withdrawing executive powers to ban pornographic web sites based on morality alone. Government can ban such a website only if it causes public disturbances creating law & order problems. Perhaps our political parties have their hands full with cricket and film releases and have not yet protested for this abdication of executive powers. In fact anything which is banned invokes more curiosity and enhances salability and becomes counterproductive to the protestors’ objectives.

The political parties would do well to focus on more serious issues like soaring inflation, hoarding of commodities, power shortages, pollution of rivers, garbage management in cities, traffic management etc. instead of trivial issues. The budgets of the states and the centre are round the corner and they could significantly contribute in program formulations and budgetary allocations. We have not seen any significant positive contribution in controlling the inflation effectively. It is unfortunate that serious issues do not have the mindshare of the politicians and common man is left to fend for himself.

Valentine Day has come to stay now, Jinnah sells faster in book stores and all the Khans & the Bachchans are doing well. And the political parties will be looking out for new non-issues while the common man is still struggling. All the best.

Vijay M. Deshpande

Corporate Advisor,

Strategic Management Initiative,

Pune

February 12, 2010

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World Economic Forum @ Davos 2010 & VMD Syndrome

World Economic Forum @ Davos 2010 and VMD Syndrome

The annual meeting of World Economic Forum at Davos just concluded with the world leaders looking back on the global meltdown of last year with a sigh of relief, sense of (false?) achievement and prospects for growth down the line.

My flagship blog “Value Management Deficiency Syndrome”, dated March 5, 2009, dealt with global financial meltdown, tracing reasons thereof and leading to erosion of value systems in the world and deficiency in management of values. Almost a year later, I am delighted that the World Economic Forum at Davos 2010 has highlighted the need for a set of values which could apply to global financial institutions. In support of this, I am falling back on a published media report and I quote:

Quote:

“…reported survey, based on 130,000 Facebook members from ten G20 economies, also found that only a quarter of people believe that large, multi-national companies have a "values-driven" approach to their sectors. The proportion rose to 40pc for small and medium-sized businesses. Half of respondents - in France, Germany, India, Indonesia, Israel, Mexico, Saudi Arabia, South Africa, Turkey and the US - believed that universal values exist.

Klaus Schwab, founder and executive chairman of the WEF, said the report underlined the need for a set of values which must be applied to global economic institutions. "Our present system fails to meet its obligations to as many as 3bn people in the world. Our civic, business and political cultures must be transformed if we are to close this gap."

When asked to identify which values were most important for the global political and economic system, almost 40pc chose honesty, integrity and transparency, 24pc chose others' rights, dignity and views, 20pc chose the impact of actions on the well-being of others, and 17pc chose the preservation of the environment.

Almost two-thirds of respondents felt that people do not apply the same values in their professional lives as they do in their private lives. When asked whether businesses should be primarily responsible to their shareholders, their employees, their clients and customers, or all three equally, almost half of the respondents chose "all three equally".

Unquote

I am glad that this realization has dawned at highest global economic body as rightly reflected by the respondents of the survey. It is sad that I was neither present at Davos 2010 nor a respondent in the survey. I have spoken exactly about the accountability and responsibility of the promotors or owners of business towards all the stakeholders including financial institutions, employees and customers. I had taken reference of Mr. Ramling Raju of Satyam Computers Ltd in March 5, 2009 blog, which I reviewed in retrospects again on January 22, 2010 after take over and revival by Mahindra Group.

Global Bandwidth of Values:

Now it is for World Economic Forum to initiate the process to translate the findings of the survey into practice. They must institute, if not already done, an expert group to bring about uniformity in basic minimum set of values which should govern the relationships between different stakeholders. A clear line must be drawn where goodness ends and criminality creeps into corporate governance. But in the complex world of business & politics this is not possible due to divergent value systems of different nations of different shades & hues ranging from tax havens and capitalists to dictators and from oil Sheikhs to communists. So in order to bring some semblence of common values globally acceptable, there must be a bandwidth of values within which a business enterprise can operate without endangering the global financial and trading systems.

Corporate Governance:

Sarbanes Oxley Act 2002 (SOX) was introduced by President George Bush to address the corporate governance, accountability and responsibility. It was touted as most comprehensive reform in corporate governance post world war. And yet it was only in this period, and inspite of SOX, that the present global financial crisis was manufactured by US corporates. In fact SOX compliance became another money spinner for consultants. This simply goes to bring home the point that legislation alone can not reduce frauds.

With globalization, the value systems of the promoters of business over ride all the legislations around the world and find the path of maximum benefits with least costs. So if governments wish to do something about frauds, they should work towards minimising the excessive benefits of bypassing laws & regulations and maximising the costs of doing so. From the hindsight we can say that nations have paid trillions of dollars in terms of financial bailouts and stimulous packages as costs of frauds perpetrated by corporate world. The costs simply shifted in multiples from fraudsters to the governments!

Point of No Failure:

One year later there is no convergence amongst governments in the developed nations on approaches to bring about checks and controls. US is encouraging banks to grow bigger beyond what I call “Point of No Failure”. Large banks like Citi Bank was too big and was bailed out. So they can continue to take undue risks without any costs to them. On the other hand European bankers want to be very cautious and have not hesitated in pulling down the shutters. With such poles apart approaches how can the financial world becomer safer?

Compliance with Value Systems:

This divergence brings out the need to leave the value system to the enterprenuers and promotors but within globally acceptable “band width”. The promotors should state their value systems chosen out of a set of approved principles, ethics and practices. This value system should be approved, modified or rejected by the stakeholders viz customers, employees and the financial institutions. Once ratified by all the stakeholders, the board must submit the same to the government authorities like Registrar of the Companies, or regulators like Securities & Exchange Board of India (SEBI), or other local bodies.

Every organization then must comply with its own stated value systems and submit compliance reports to the stake holders every year in AGM for ratification. As Mahindra Satyam has done, there should be a chief compliance officer in charge of monitoring the ethics & value system of the organization with full accountability. To help achieve this objective, a company must elaborately identify the operating factors, out of the globally acceptable set of values, which need to be monitored within the permissible margins for variation ( the bandwidth) with lower & upper limits.

That is the only way forward to arrest the decay in the global value system. There will always be deficiencies in values in any organization which must be identified, corrected and managed. Value Management Deficiency Syndrome is a default option and if we don’t work to stop the organizational decay, it is bound to happen with no efforts by itself.

Value Deficit Tax:

We have value added tax, fringe benefit tax, minimum alternative tax and security transaction tax and endless plethora of taxes. What about a Value Deficit Tax? A tax to be levied for non compliance with approved & stated value systems? Like GST (goods & services tax) there could be Value Defict Tax which can take care of all sorts of negative practices indulged in by a company.

The Executive Chairman of World Economic Forum must be focussing on evolving set of values (or global band width of values) which must be applied to global financial institutions as well as business enterprises. A global Value Deficit Tax would make all sit up and do something about it. Davos 2011 then sould be an inetersting event to watch out!

Vijay M. Deshpande

Corporate Advisor,

Strategic Management Initiative,

Pune

February 5, 2010

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